Looking for further information?

We use cookies to provide a user-friendly experience. By continuing to browse this site, you give consent for cookies to be used. To find out more how to set your own preferences please read our Cookie Policy.

By continuing to browse this site, you give consent for cookies to be used. To find out more please read our Cookie Policy.

IMPORTANT INFORMATION

Please read this Important Information. If you do not agree to the below, please do not accept and enter this site.

The information on this site is aimed at “qualified investors”, as determined under article 34-ter para. 1, letter b) of CONSOB Regulation on Issuers no 11971 of 1999, as amended, which refers to the definition of “professional clients” under CONSOB Regulation on Intermediaries no. 20307 of 2018, as amended, implementing in Italy some provisions of the Markets in Financial Instruments Directive (“MiFID”), resident or incorporated in Italy. If you are not a qualified investor/professional client, please leave the site now.

Past performance is not a reliable indicator of future results. The value of investments and any income from them may go down as well as up and investors may get back less than the amount originally invested. Fluctuations in exchange rates may affect the value of an investment and any income derived from it.

Nothing contained within this site should be construed as investment advice by Merian Global Investors or of any other regulated activity. This site is not a substitute for independent professional advice and users of this site should obtain appropriate professional advice relevant to their particular circumstances prior to making any investment decisions. The site must not be relied upon in connection with any investment decision. The products on this site may not be suitable for all investors.

Before proceeding, you are reminded that your use of this site is subject to Terms and Conditions of use. By clicking below, you confirm that you are a qualified investor/professional client as defined above and you have read the Terms and Conditions including the Privacy Notice and agree to be bound by them. In particular, by continuing to use this site, you consent to the use of cookies in accordance with our Privacy Notice and Cookies Policy.

The information on this site is not directed at any US Person. By proceeding, you confirm that you are not a US Person. This site is reserved exclusively for non-US persons and should not be accessed by any person in the United States.

REQUEST INFORMATION

STAY IN TOUCHWITH OUR INSIGHTS

Global equities

Trump win wrong-foots forecasters

The result of the US presidential election, like that of the UK referendum on the EU, went against the predictions of most opinion pollsters, who had put Hilary Clinton, the Democratic candidate, slightly ahead prior to the actual vote.

41 viewed

The result of the US presidential election, like that of the UK referendum on the EU, went against the predictions of most opinion pollsters, who had put Hilary Clinton, the Democratic candidate, slightly ahead prior to the actual vote. The victory of Donald Trump, the Republican candidate, was in defiance not only of the pollsters, but also of many investors’ expectations. Overturning predictions, Trump won key swing states of Florida, Ohio and North Carolina on his path to the White House. Forecasters have been wrong-footed, and there could be increased volatility in markets while investors digest this new information, and wrestle to understand the implications of the Trump presidency.

Trump is in many ways an unknown quantity, and his presidency could spell a period of uncertainty for investors. We shall be monitoring markets closely, but it would be reasonable to expect, in the short term at least, a sell-off in equities, not only in the US but also internationally. The immediate reaction of equity markets was negative, with Asian indices falling. The US dollar also fell, down 3.4% against the Yen as at 5:20am London time.

The dollar has come under pressure, both because a hike in interest rates by the US Federal Reserve now seems less likely, and also because investors may place a higher risk premium on US investments. Volatility across many asset classes could increase in the short-term.

Looking further ahead, several of Trump’s policies, for example his protectionism, his desire to scrap existing international trade deals, and to deport illegal immigrants, have the potential to contribute to longer-term market volatility; but others, for example his plans to slash taxes, including reducing the business rate from 35% to 15%, his plans to encourage repatriation of corporate profits held offshore, and to embark on massive infrastructure spending, could stimulate the US economy, lifting equities. Much is uncertain, not least because his campaign promises have been long on rhetoric and short on policy detail.

Given the intense degree of attention on the election, and its undoubted political importance, it may seem surprising that within the global equities team at OMGI we made no attempt to predict its result. We are not in the business of trying to predict events that are very hard to predict. Striving to forecast a binary (either/or) event such as a close-run election is, in our view, not a good way to invest. We have built our investment process on other – we believe sounder – principles.

Macro events and geopolitical events, like the US election, affect our investment process implicitly rather than explicitly. They impact the market, and this is the key for us. We are much more interested in how the market is behaving because that gives us the clues as to how we should position our portfolios.

A stable process

Our investment process involves developing a view of how the stock market is behaving. We have to be very aware of the direction of the market, the volatility of the market, and of the ways in which individual stocks’ returns differ from each other. How, and to what degree, do stock returns vary from each other? How great is investors’ appetite for taking risk? Are investors comfortable exposing themselves to higher degrees of risk, in the hope of achieving higher returns, or are they much more risk averse, shunning risk and seeking the safety of stocks of higher quality? Those kinds of questions are being asked all the time within our portfolio investment process. That leads us to the stocks that we will want to buy.

US equities not cheap

Recently, US equities have generally not been cheap in valuation terms, though many of the companies in this market are high quality, so one might expect to pay a higher price. Parts of the US market are particularly expensive relative to the average. For example, large cap (shares in larger companies) tends to be more expensive than small- and mid-cap (shares in small and medium-sized companies): this is partly because large caps are international, but also because they receive large inflows from investment funds that track indices (because the largest of them track baskets of large caps). Other areas of the market that have become more expensive are dividend payers (shares which pay out high levels of dividends to shareholders), and low volatility (shares which move up and down less than the overall stock market).

In my view, active managers have a great opportunity at the moment because there is a lot of mispricing in North America. Although North America as a whole is not cheap, there are cheap areas of North America that can be exploited by investors who are nimble enough.

RELATED ARTICLES

Next article:

Inauguration of Donald trump as president of the United States: the consequences for equities

20 Jan 2017 | By Richard Buxton, Ian Heslop

What will occupy front and centre stage in the first hundred days of Trump’s presidency is his focus on tax reforms.